Gold, Silver, Metal Prices Commentary – September 1, 2010

Overnight gains in precious metals prices brought gold within striking distance of its June highs as the yellow metal entered its 50th week spent at above $1,000 an ounce.

Some media reports assigned the climb to the $1,255.00 level as due mainly to concerns about economic growth. Virtually at the same time during the night, we were treated to headline announcing that stock futures rose due to an easing of economic concerns. Stop us if you too are befuddled by some of the things you run across in your morning reading.

At any rate, the malaise about global economic growth took a breather overnight as news of a rebound in Chinese manufacturing activity — following a multi-month slippage- and of a surge in Aussie economic growth prompted investors to once again consider risk assets. And now, for the hard(er) part: upcoming US data and what it might do to such budding positive sentiment.

ADP’s private sector employment figures were on tap this morning, and they revealed a decline of 10,000 positions in the month of August. The addition of 30,000 jobs in the service sector was offset by a 40,000 position fall in the manufacturing sector. While the net number may appear small, at the end of the day it represents the first such drop after a six-month string of gains. The news release failed to dent apparent bullishness in stock index futures, but the markets were still awaiting ISM manufacturing and construction spending data, as well as auto sales figures.

Gold opened the midweek session with a $5.70 per ounce gain, quoted at $1,253.40 per troy ounce basis spot bid. The rise in gold took place as against a sizeable, safe-haven-position-unwinding-based slippage in the US dollar (down 0.63 to 82.47 on the index) which accounted for a true increase of $10.30 per ounce in the metal at opening time.

The differential and net gain was accounted for by predominant selling in the physical market (to the tune of a $4.60 decline) noted at the same time. In other gold-related news, Indian buying remained muted overnight as near-record prices made for scarce shoppers in local bazaars according to our sources, Russian (central bank) buying largely offset IMF selling for the month of July (16.2 tonnes versus 16.85 tonnes), and ETF holdings grew by almost 4 tonnes amid the latest rally in prices.

Some will, of course, not at all fail to notice this other bit of news, which, according to the Street.com announces that "JPMorgan (JPM) will close its commodity proprietary trading desk to meet with the recent financial reform law. Its prop desk is in London and it’s unclear as to how its absence in the market will affect the gold futures market."

Manipulation forums-it is reported-are despondent about the fact that fingers will no longer be able to point to JPM and its sinister, putative ‘interventions’ into the gold market (at the behest of Uncle Sam, no less).

A fresh, gold-cautionary comment from a PBOC researcher brought up the prospect of central bank selling (including that of the United States, said he) of the metal. The tiny news item was buried amid what appears to be uniformly bullish posturing among gold market times. Something that actually worries Marketwatch’s Marc Hulbert, more than a bit — even if only in the short-term. Walls of worry, slopes of hope. What would the markets do without them? Don’t know, really, but at least one analyst was quoted to say this morning that this market really needs to turn up the ETF gold-buying spigot if it is to make advances past $1,265.00 an ounce. Like we said on previous occasions; a market addicted to fund funds, this has become.

At market opening time, silver was ahead by 2 pennies, quoted at $19.42 per ounce. Substantial gains were noted in platinum and palladium on the open, with the former rising $10.00 to start at $1531.00 and the latter climbing $8.00 to the $520.00 mark. Rhodium was flat at $2,080.00 the ounce. In the background, stock index futures were still looking robust, while crude oil advanced about eight-tenths of a dollar to the $72.75 level.

Noble metals added value on the back of news that South Africa’s NUM is about to strike at Northam Platinum and on fresh data indicating that auto sales — at least those in Asia- are looking robust. While the markets still await North American auto sales figures, the fact that Chinese dealers moved nearly one million units off their lots in August, and that those in Japan witnessed the third biggest monthly sales gain ever, encouraged funds to bid the complex higher this morning.

Add in figures from India, which shows a 35 percent growth in its automotive market for the first four months of its current fiscal year, and the news for the pgm group metals could not have been better at this time, although some analysts doubt that such momentum is sustainable, as — for example — Japan’s figures were largely attributed to the imminent expiration of government subsidies designed to stimulate sales. We ran across at least one article that projects a hefty slide (okay, a ‘collapse’) in Japanese car sales, to be led by the best-selling Prius model from Toyota.

Something else that may yet slide is the level of certainty about ‘imminent Fed asset buying sprees.’ The Fed’s own members were shown as being at odds with signaling easier monetary policy following its latest August meeting.

"A few members worried" the move "could send an inappropriate signal to investors about the committee’s readiness to resume large-scale asset purchases." is how this was described in the release of the FOMC minutes yesterday.

According to Bloomberg, "Michael Dueker, head economist at Russell Investments in Tacoma, Washington, said there is an "even chance" of further quantitative easing, or use of tools such as asset purchases, before year’s end. "Chances are very low that they take more action in September," said Dueker, a former member of the St. Louis Fed research staff. "Quantitative easing is a bigger step than a quarter- or half-point cut in the interest rate. This is going to require more evidence."

In the interim, let’s wait for that evidence. There are three more days’ worth coming in the pipeline.